Microsoft is said to be releasing Office for the iPad–a move that would have it sleeping with the enemy. The tech giant has (not all that convincingly) denied this is happening. Here’s why it absolutely should do it.

The tablet-based publication (tab-lication?) The Daily is embroiled in a fuss about its leak of plans to bring Microsoft’s Office suite to the iPad. The Daily‘s convinced the software is for real, but Microsoft has issued a tissue-thin denial that actually confirms or denies nothing material. Meanwhile, the general feeling is that MS would be crazy not to expand its Office domain onto the best-selling tablet PC–one that’s causing a computing revolution. But Microsoft is actually facing a stickier problem here.

It’s about price and precedent.

MS would be foolish not to address the iPad App Store as a market space because Apple’s tablet is continuing to dominate the scene, is likely to do so for a while, is affecting PC sales, and is penetrating into business workplaces (with a recent survey saying 91% of business and IT pros using one for work). That’s MS’s traditional Office stomping ground. MS’s own Windows 8-powered tablets aren’t due for a while yet and will likely take a while longer to actually establish a decent market share, so delaying a tablet edition of Office until then could miss out on potential sales. It’s also arguable that while Android is building its tablet market share, writing Office to be compatible with so many subtle variations of Android OS and hardware would be a lot more work than aiming at Apple’s product.

So, let’s assume that MS really is developing a version of Office for Apple’s iPad that embodies some of its own Metro mobile OS styling as the leaked imagery hints. Let’s guess that MS may even build in some of its upcoming SkyDrive tech to facilitate cloud storage, thus boosting business-user productivity (when users later download that PowerPoint slide they were working on to their office PC) and competing with Apple’s iCloud system. That sounds great, doesn’t it? MS fans, or those merely chained to MS by years of having to use its products, will get their familiar systems on a new and very chic computing platform that’s ideal for use while commuting and which will enable perfect compatibility with their PC apps at home or at their desk.

Now–how does Microsoft price this code?

Apple already has its own business productivity apps on the iPad with Pages, Numbers, and Keynote, and they offer compatibility with MS’s system and interlock through the cloud to Apple’s own desktop versions. If you use one iTunes account on several iPads, thanks to the way Apple’s system works you only need pay once for these apps. They sell for a very reasonable $9.99 each, allowing Apple to continue its PR effort that points out how many apps you have to pay for on PCs are free, already installed, or low-cost on its hardware.

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Microsoft could easily price at or very near to the same point and compete directly, relying on the massive inertia the Office name carries.

But Office on the PC costs $119.99 for one user on a home PC for the lowest “Home and Student” edition, and $349.99 for the full “Professional” version. That’s four times the cost of Apple’s iPad apps for the entry level and over 11 times the cost for the top edition. It costs more still to install Office on a handful of PCs ($499.99 for the Pro version). So pricing the tablet edition at $30 for the full package could set a precedent among consumers to expect lower prices for the desktop software too. Which would hurt MS because Office is one of the world’s best selling pieces of software and it makes up a big part of the company’s profits (it may, or may not, have recently superceded Windows as the biggest contributor to MS’s bottom line, and was credited with boosting a 6% rise in MS quarterly profits to $5.74 billion late in 2011).

So MS could make the tablet versions not fully featured, arguing (perhaps without real basis) that the tablet environment isn’t suited for the full workload of, say, Excel or that the hardware wouldn’t support it. That sets a bad precedent for its own software on Windows 8 tablets then: Why buy a Win 8 tablet if the apps are already on the iPad cheaply, and why buy them at all if they don’t work as well as the desktop ones? If MS then chooses to make the Win 8 versions of Office better than the iPad ones, this would be simply exposed as marketeering and could alienate a considerable number fo consumers who already love their Apple product. And don’t forget the rumors about the upcoming iPad 3–its super-high-resolution screen will best that on many PCs, and its hardware would thus seem perfectly capable of supporting as complex an app as Excel. It may even beat the upcoming Windows 8 hardware.

And Apple, seeing the app competition, could always spend a little effort to brush up its own iWork suite on the iPad to improve both functionality and cross-compatibility with Microsoft’s software, and quickly nullify any added value in buying Office and maybe even Windows 8 tablets. After all, the iPad is very publicly applauded right now, and who would spend $500 to $800 on one in March, complete with their familiar MS Office aboard, only to ditch it for an unproven Windows effort late in 2012?

Hence Microsoft is trapped in a version of the famous prisoner’s dilemma, being forced to cooperate uncomfortably with its erstwhile “enemy” in order to make profits from the iPad’s success, so both parties ultimately benefit. Its one true path out of the mess is to really innovate, and deliver such serious added value from the iPad edition of Office and the Windows 8 version that it actually attracts customers because of its exciting strengths and cool new features. Does that sound like a typical Microsoft solution to you?

About the author

I'm covering the science/tech/generally-exciting-and-innovative beat for Fast Company. Follow me on Twitter, or Google+ and you'll hear tons of interesting stuff, I promise.
I've also got a PhD, and worked in such roles as professional scientist and theater technician...thankfully avoiding jobs like bodyguard and chicken shed-cleaner (bonus points if you get that reference!)